M/s. Royal Enfield
(Unit of M/s. Eicher Ltd.) Vs. Commissioner of Central Excise, Chennai
JUDGMENT
Dr. MUKUNDAKAM
SHARMA, J.
1.
By
this judgment and order we propose to dispose of this appeal which is filed by the
appellant-company challenging the judgment and order dated 24.11.2009 of the
Customs, Excise and Service Tax Appellate Tribunal [for short "the Tribunal"],
Chennai, whereby the Tribunal rejected the appeal filed by the appellant and upheld
the order of the Commissioner of Central Excise [Appeals], Chennai.
2.
The
issue that arises for our consideration in the present case is as to whether the
cost of packing charges expended/incurred by the appellant-company is liable to
be included in the assessable value of the motorcycles manufactured by the
appellant-company.
3.
The
appellant-company, previously known as M/s. Eicher Limited - unit Royal Enfield
Motors, are manufacturing motorcycles falling under Chapter 87 of the Central Excise
Tariff Act, 1985. The issue relates to non-inclusion of the value of packing charges
by the assessee-company in the assessable value for motorcycles despite the
fact that the said motorcycles were cleared by the assessee to the dealers located
outside Chennai by sending them to their various depots on stock transfer basis
and in packed condition from their factory during the period from April, 1999
to December, 1999.
4.
At
the time of removal from the factory to depot the motorcycles were cleared in
fully packed condition. It is also established from records that Rs. 190/- is
being charged as packing charges by the appellant and, therefore, the said amount
which was collected as packing charges must have been passed on to the buyers. The
appellant- company filed price declaration in Annexure-II for the vehicles sold
from their depots and therein declared the depot sale price per vehicle and claimed
abatement of Rs. 190/- per vehicle towards packing charges.
5.
A
show cause notice dated 4.10.1999 was issued by the respondent to the appellant-company
for the period from April, 1999 to September, 1999 directing them to show cause
as to why the aforesaid abatement claimed of Rs. 190/- should not be disallowed
and as to why a differential duty of Rs. 4,41,043/- and Cess of Rs. 2,228/- should
not be demanded. Thereafter, another similar show cause notice dated 24.2.2002
was also issued for a subsequent period, i.e., from October, 1999 to December, 1999
demanding differential duty of Rs. 2,45,602/- and Cess of Rs. 1,279/-.
6.
The
Assistant Commissioner of Central Excise, Chennai `C' Division passed an order-in-original
disallowing the abatement of Rs. 190/- claimed by the assessee towards the cost
of packing and upheld the demand made in the show cause notices. While recording
the aforesaid finding and the conclusion, the Assistant Commissioner referred
to the decision of this Court in the case of Government of India v. M/s. Madras
Rubber Factory Limited reported in 1995 (77) ELT 433 (SC): (1995) 4 SCC 349 and
on another order of the Customs, Excise and Service Tax Appellate Tribunal, New
Delhi in the case of Commissioner of Central Excise, Jaipur v. M/s. Eicher Limited
reported in 2001 (136) ELT 1029 [Tri. Delhi] in which the Tribunal, in respect of
the same assessee, held that the cost of packing is to be included in the
assessable value of the motorcycles manufactured by it. Aggrieved by the aforesaid
order-in-original of the Assistant Commissioner the appellant-company filed an appeal
before the Commissioner of Central Excise [Appeals], Chennai which got rejected
by order dated 23.07.2003 while relying on the decision of CESTAT, Delhi in the
case of Commissioner of Central Excise, Jaipur [supra].
7.
Being
aggrieved by the said order of the Commissioner of Central Excise [Appeals], Chennai
assessee-company filed an appeal before the Tribunal, Chennai which also was rejected
by the impugned judgment and order dated 24.11.2009 and, therefore, the present
appeal was filed in this Court by the appellant-company on which we heard the
learned counsel appearing for the parties.
8.
During
the course of hearing our attention was drawn to Section 4 of the Central
Excise Act, 1944 [for short "the Act"], the relevant portion of which
is extracted below for better understanding and ready reference: - "Section
4. Valuation of excisable goods for purposes of charging of duty of excise –
(1) Where under this
Act, the duty of excise is chargeable on any excisable goods with reference to
value, such value, shall, subject to the other provisions of this section, be
deemed to be - (a) the normal price thereof, that is to say, the price at which
such goods are ordinarily sold by the assessee to a buyer in the course of
wholesale trade for delivery at the time and place of removal, where the buyer is
not a related person and the price is the sole consideration for the sale: ............................................................(4)
For the purposes of this section, -
(a) "assessee"
means the person who is liable to pay the duty of excise under this Act and
includes his agent; (b) "place of removal" means - (i) a factory or any
other place or premises of production or manufacture of the excisable goods; (ii)
a warehouse or any other place or premises wherein the excisable goods have been
permitted to be deposited without payment of duty; (iii) a depot, premises of a
consignment agent or any other place or premises from where the excisable goods
are to be sold after their clearance from the factory and, From where such
goods are removed;
(ba) "time of removal",
in respect of goods removed from the place of removal referred to in sub-clause
(iii) of clause (b), shall be deemed to be the time at which such goods are
cleared from the factory; ........................................ ........................................
(d) "value", in relation to any excisable goods, - (i) where the goods
are delivered at the time of removal in a packed condition, includes the cost
of such packing except the cost of the packing which is of a durable nature and
is returnable by the buyer to the assessee. Explanation - In this sub-clause, "packing"
means the wrapper, container, bobbin, pirn, spool, reel or warp beam or any other
thing in which or on which the excisable goods are wrapped, contained or
wound; ........................................ ........................................"
9.
Relying
on the same counsel appearing for the appellant-company submitted before us
that the cost of the packing material cannot be included in the assessable
value because the said cost of the packing material cannot be said to be the price
at which such goods are ordinarily sold by the assessee to a buyer in the
course of wholesale trade for delivery at the time and place of removal. He
also submitted that the requisite packing is done so as to avoid scratch to the
painted body and breakage of the lights fitted on to the motorcycles during transportation,
and therefore, the cost of the aforesaid packing was not includable as per
Section 4 of the Central Excise Act to the value of the motorcycles. In support
of the aforesaid contentions he relied and referred to various judgments of this
Court, viz., Union of India & Ors. V. Bombay tyre International Ltd.
reported at 1983 (14) ELT 1896 (SC); Union of India & Ors. v. Godfrey
Philips India Ltd. & Ors. reported at 1985 (22) ELT 306 (SC) and Hindustan Polymers
v. collector of Central Excise reported at 1989 (43) ELT 165 (SC).
10.
Counsel
appearing for the respondent, however, submitted that the aforesaid submissions
are untenable in view of the settled position of law in the decision of this Court
in the case of Government of India v. M/s. Madras Rubber Factory Limited [supra].
He also drew our attention to the fact that the appellant has been realizing
Rs. 190/- as packing charges from the buyers, therefore, the entire amount is passed
on to the buyers by the appellant-company. He also submitted that the cases relied
upon by the counsel appearing for the appellant are distinguishable on facts. In
the light of the aforesaid submissions made on behalf of the counsel appearing for
the parties we would proceed to discuss and answer the issue raised before us.
11.
The
provisions extracted hereinbefore from the Central Excise Act would indicate that
there is express provision in Section 4 for including the cost of packing in the
determination of value for the purpose of excise duty. Sub-Section 4 (d)(i) along
with explanation has relevant bearing on the present case. According to the said
provision where goods are delivered at the time of removal from the factory
gate in a packed condition the value would include the cost of such packing but
would not include such cost of packing which is of a durable nature and is
returnable by the buyer to the assessee.
12.
In
Union of India & Ors. V. Bombay Tyre International Ltd. reported at 1983
(14) ELT 1896 (SC): (1984) 1 SCC 467 this Court had an occasion to deal with
the said provision and in paragraph of the said judgment this Court has held
thus: - "15. The case in respect of the cost of packing is somewhat complex.
The new Section 4(4)(d)(i) has made express provision for including the cost of
packing in the determination of "value" for the purpose of excise duty.
Inasmuch as the case of the parties is that the new Section 4 substantially reflects
the position obtaining under the unamended Act, we shall proceed on the basis that
the position in regard to the cost of packing is the same under the Act, both
before and after the amendment of the Act. Section 4(4)(d)(i) reads: "(4)
For the purposes of this section,-- * * * (d) "value" in relation to
any excisable goods,-- (i) where the goods are delivered at the time of removal
in a packed condition, includes the cost of such packing except the cost of the
packing which is of a durable nature and is returnable by the buyer to the
assessee." Explanation.—
In this sub-clause `packing'
means the wrapper, container, bobbin, pirn, spool, reel or warp beam or any other
thing in which or on which the excisable goods are wrapped, contained or
wound;" It is relevant to note that the packing, of which the cost is included,
is the packing in which the goods are wrapped, contained or wound when the
goods are delivered at the time of removal. In other words, it is the packing
in which it is ordinarily sold in the course of wholesale trade to the wholesale
buyer. The degree of packing in which the excisable article is contained will vary
from one class of articles to another.
From the particulars detailed
before us by the assessees, it is apparent that the cost of primary packing, that
is to say, the packing in which the article is contained and in which it is made
marketable for the ordinary consumer, for example a tube of toothpaste or a
bottle of tablets in a cardboard carton, or biscuits in a paper wrapper or in a
tin container, must be regarded as falling within Section 4(4)(d)(i). That is indeed
conceded by learned counsel for the assessee. It is the cost of secondary packing
which has raised serious dispute. Secondary packing is of different grades.
There is the secondary
packing which consists of larger cartons in which a standard number of primary cartons
(in the sense mentioned earlier) are packed. The large cartons may be packed into
even larger cartons for facilitating the easier transport of the goods by the wholesale
dealer. Is all the packing, no matter to what degree, in which the wholesale
dealer takes delivery of the goods to be considered for including the cost thereof
in the "value"? Or does the law require a line to be drawn somewhere?
We must remember that while packing is necessary to make the excisable article marketable,
the statutory provision calls for strict construction because the levy is sought
to be extended beyond the manufactured article itself.
It seems to us that the
degree of secondary packing which is necessary for putting the excisable article
in the condition in which it is generally sold in the wholesale market at the
factory gate is the degree of packing whose cost can be included in the "value"
of the article for the purpose of the excise levy. To that extent, the cost of
secondary packing cannot be deducted from the wholesale cash price of the excisable
article at the factory gate."
13.
In
Union of India & Ors. v. Godfrey Philips India Ltd. & Ors. reported at 1985
(22) ELT 306 (SC) this Court again considered a similar issue. What was decided
by the majority of Judges in the said case was that the cost of packing done for
protection of excisable goods during the transportation is also includible in assessable
value. The said case basically revolved round the cost of corrugated fibreboard
containers and all the three learned Judges uniformly reiterated the principles
and the test evolved in Bombay Tyre International but arrived at divergent
conclusions (the majority comprising Pathak and Sen, JJ. taking one view and
Bhagwati, C.J., the other) on the basis of differing perceptions as to the
factual situation in that case. As was noted in the said case the majority and
minority came to different conclusions not on account of their adopting a different
test or principle but only on account of their differing perceptions of the
factual situation. So far as the test applicable is concerned, all the three learned
Judges were at one and in agreement.
14.
Finally
in the decision of Government of India v. Madras Rubber Factory Ltd. reported at
1995 (77) ELT 433 (SC) a three-Judge Bench of this Court held that where the goods
are delivered in a packed condition at the time of removal the cost of such packing
shall be included. While recording the aforesaid conclusion this Court took
notice of the aforesaid definition of value as given in sub- Section 4 of Section
4 of the Act. After noticing the aforesaid definition it was held that the
provision in the sub-clause is a plain one and does not admit of any ambiguity as
what it says is that where the goods are delivered in a packed condition, at the
time of removal, the cost of such packing shall be included and that only where
such packing is of a durable nature and is returnable by the buyer to the assessee,
should the cost of such packing be not included in the value of the goods.
It was also held in
that decision that the concept of primary and secondary packing which is recognized
to some extent in the decision of this Court in Bombay Tyre International Ltd. case
[supra], which is not possible to be wished away and is merely a refinement and
is not borne out by the express language of the enactment and, therefore, the
same is to be resorted to with care and circumspection. Thereafter, the Court proceeded
to discuss the case of Bombay Tyre International Ltd. [supra] and also the
decision in Godfrey Philips India Ltd. & Ors. [supra]. Having discussed both
the cases, this Court laid down the test in the following terms: - "
Whether packing, the cost
whereof is sought to be included is the packing in which it is ordinarily sold in
the course of a wholesale trade to the wholesale buyer. In other words, whether
such packing is necessary for putting the excisable article in the condition in
which it is generally sold in the wholesale market at the factory gate. If it
is, then its cost is liable to be included in the value of the goods; and if it
is not, the cost of such packing has to be excluded. "
15.
The
aforesaid decision was rendered by this Court with respect to "tyres"
which also were sold at the factory gate in a packed condition for onward easy
transportation. In the background of the said case, it was held that the cost of
such packing would be included in the assessable value.
16.
Almost
similar are the facts of the present case. The authorities below as also the Tribunal
found that the facts of the present case entirely fit in the facts of the
aforesaid decision in the case of Madras Rubber Factory Ltd. [supra]. The said
three authorities as also the Tribunal on analyzing the records came to a
finding that the packing which is given by the appellant-company to their motorcycles
is necessary for putting the excisable article in the condition in which it is generally
sold in the wholesale market at the factory gate and, therefore, such cost is
liable to be included in the value of the goods and the cost of such packing cannot
be excluded. The aforesaid conclusions are based on cogent reasons and are also
supported by a well-reasoned decision of three Judges Bench of this Court.
17.
Although,
the counsel appearing for the appellant-company vehemently submitted that the
facts of this case are more akin to the cases of Bombay Tyre International Ltd.
[supra] and also to the that of Godfrey Philips India Ltd. & Ors. case [supra]
having considered the above situation of facts and law, we are of the considered
opinion, that all the aforesaid decisions, which are relied upon by the counsel
appearing for the appellant, were taken notice of in the subsequent decision in
Madras Rubber Factory Ltd. [supra] and this Court after detailed discussion of such
cases has given a very reasoned order which is applicable to the facts of the present
case in full force.
18.
Therefore,
we agree and confirm the findings recorded by the Tribunal as also by the
authorities below and dismiss this appeal but leaving the parties to bear their
own costs.
............................................J
(Dr. MUKUNDAKAM SHARMA)
............................................J
(ANIL R. DAVE)
NEW
DELHI,
AUGUST
10, 2011.
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